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Solar tariffs likely to rise in near term: Icra

Solar power segment remains the key driver of capacity addition in the sector, surpassing wind power capacity for the first time in January this year. (Photo: Bloomberg)Premium
Solar power segment remains the key driver of capacity addition in the sector, surpassing wind power capacity for the first time in January this year. (Photo: Bloomberg)

  • Icra has a stable outlook for the renewable energy sector on factors such as policy support from government, strong growth potential, presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness

MUMBAI: Policy support and tariff competitiveness will likely continue to drive investments in the renewable energy sector but delays in signing of power purchase agreements (PPAs) and power sale agreements (PSAs) are key downside risks, said Icra Ratings on Wednesday.

While solar power tariffs will see an expected increase due to the levy of the basic customs duty, they will likely remain below Rs3 per unit and cost competitive.

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The pandemic-induced restrictions had slowed down capacity addition in the renewable energy sector during the initial months of the current fiscal. However, beginning October, activity has picked up, ed by easing of lockdown curbs and supply chain challenges.

The sector added 5.9 GW in the first eleven months FY21, which is expected to increase to 7.5-8.0 GW by March 2021. Solar power segment remains the key driver of capacity addition in the sector, surpassing wind power capacity for the first time in January this year.

“Favourable factors like policy support and tariff competitiveness are likely to attract investments in the RE sector. Given the expected increase in solar tariff rates amid the imposition of basic customs duty (BCD) on imported solar PV cells and modules, the key downside risk for the sector in the near term arises from the risk of delays in signing of the PPAs/PSAs," said Girishkumar Kadam, co-group head, Icra ratings, adding that about 20 GW capacity tendered by central intermediate procurers such as the Solar Energy Corp of India Ltd (SECI) and NTPC Ltd are is yet to tie up PPAs/PSAs.

Icra has a stable outlook for the renewable energy sector due to factors such as continued policy support from the government, strong growth potential, presence of creditworthy central nodal agencies as intermediary procurers and tariff competitiveness.

The resolution of tariff issue for renewable projects in Andhra Pradesh is a key monitorable.

The government has recently notified the Approved Models and Manufacturers of Solar PV modules (ALMM) for procurement by developers under various schemes. This is a positive for domestic solar cell and module manufacturers. And while the absence of solar PV manufacturers located outside India from the list helps, clarity is required on the applicability of the order on projects awarded under standard bidding guidelines, Icra said.

This apart, the credit profile of operational RE projects having exposure to state distribution utilities (discoms) remains constrained by delays in payments, with overall dues from discoms to independent power producers (IPPs) having risen 39% to Rs121.4 billion as of January 2021 from Rs87.6 billion as of March 2020, as per data from the PRAAPTI portal.

“The PLF performance of wind projects in ICRA’s rated portfolio has seen a greater variability, as against the solar projects. This is also reflected from the dip in generation for ICRA-rated wind IPPs by about 15% on a year-on-year (YoY) in FY2021, amid a relatively subdued wind season," said Vikram V, sector head, Icra Ratings, adding that payment delays have remained relatively more prominent for wind projects under the state policy framework.

However, despite the variability in generation and payment delays, the credit profile of Icra-rated RE IPPs is supported by adequate liquidity buffer in the form of debt service reserve and working capital funding and presence of a relatively strong sponsor.

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